Granules India Limited Buyback Note 2020 | IndiaNivesh

The year gone by: 2019 has been marked by high volatility. It has also been a year of government initiatives on all fronts, be it economic, social and political. It witnessed two Budgets, the levy and then a roll-back of the FPI surcharge, an accommodative monetary policy cutting interest rates by 135 basis points, and a historic direct tax reform where effective corporate tax was lowered by 8–9%. It also saw the repeal of Article 370, amendment of the Citizenship Act of 1955, amendment to the IBC Act, and several micro policy reforms enabling and empowering effective corporate governance. All asset classes delivered handsome gains fueled by the unmatched liquidity push by central banks across the globe. At the time of writing this piece, top outperformers being Crude Oil which is up around 32.49% and the US 10-year bonds where yields fell by 31.93%. In equities it has been developed economies, along with Brazil from the emerging basket. Thus far in 2019, most global indices are in the green, viz. Dow Jones (+20.61%), S&P 500 (+26.41%), Russell 2000 (+21.46%), CAC (+25.12%), DAX (+25.80%), Brazil (+28.08%), and Nikkei (+20.03%). However, the emerging economies have largely underperformed, viz. Hong Kong (+7.13%), South Korea (+6.33%) and India (Nifty: +11.27%). At the beginning of the new year, investors are thus keen to know what are the best shares to invest in 2020.  Precious metals saw a mild upside, with gold, silver and platinum gaining 15.24%, 9.28%, and 17.77%, respectively. Though our markets scaled new highs, it got narrower towards the top. Out of the top 200 stocks by market capitalisation, around 112 turned negative while only 82 are in positive territory, out of which 66 have been able to outperform headline indices. Before the scope of the best shares to buy in 2020 are discussed, it is worthwhile to mention that earnings for H1FY20 Nifty 50 have de-grown by -5%, while that of the next 150 stocks (excluding Vodafone Idea) is down -1%. What are the best shares to buy today is thus a valid question to be asked now.Outlook 2020: Year 2020 will be a year of slow and stable economic growth recovery worldwide, status quo on monetary policies, demand-driven higher commodity prices, firmer oil prices, benign USD, and higher bond yields. At a time like this, investors are naturally curious about the best shares to buy in 2020. The year 2020 will be a year of equities. Like 2019 however, it will be marked by high bouts of volatility.  We expect sharp and deep corrections, which can serve as opportunities to be bought into. Stock pickers will be rewarded. We believe, cyclical stocks like financials, metals, materials and automobiles are the best shares to invest in 2020 as they are set to outperform while FMCG and utilities will likely witness muted participation. Mid & small-cap segments will be highly fragmented. Rather than sectoral focus one has to be stock-specific to arrive at the best stocks to buy. Stock-specific outperformance is expected in midcap and small Cap segments. Macro-economic tailwinds will be key market drivers. Receding global trade war fears, continuity of enabling government policies, benefits of low-tax structures for corporates, good monsoon, low interest rate regime, low base of CY19 will turn sentiments around, leading to higher consumption and spending by now sceptical consumers. Improving economic outlook along with favourable policies should see FPIs returning and consider the shares to buy today in the Indian market. Historical weight of evidence suggests that markets usually gain traction 2-3 quarters ahead of an actual economic turnaround. The reversal of 2000–2002 and the 2008–2009 market decline was reflective of this trend. Aggregate earnings are likely to be boosted by the reversal of NPAs in a big way in H2FY20. We expect FY21 to be a year of high growth; the first being the low base of FY20 and second being the benefits of policy reforms like lower tax rates, which will play a pivotal in pushing up the economy. We believe that GDP and IIP numbers are about to bottom.The downside, if any, is limited. CPI inflation has firmed up and is expected to remain elevated for H1FY21, pick up in materials and metals prices will bottom out WPI, oil prices have been firm, and automobile manufacturers are hiking prices, all of which are indicative of the demand scenario improving. Transmission of interest rate cuts by banks will provide a much needed elbow room for higher operating margins of businesses. The lower interest rate cycle is on the verge of bottoming out globally. We expect the Nifty 50 EPS to see traction of over 20% in FY21. Discounting the Nifty 50 at FY21E at a PER of 21x, its year-end target is likely to be around 12,600. Investment norms: INR 5 lakh (model corpus)  Maximum stocks open: 5 Target investment horizon: 3 Months Occasional hedging by buying options or shorting index futures. Investment rationale on every idea is provided. 20% in a particular stock and 30% (max) in a sector. Cash holding based on market direction call. Cash to be deployed in case of sharp market fall. Cash holding to earn notional interest income of 4% p.a. This is just a Model Advisory Portfolio (not part of IndiaNivesh PMS).Short Term Investment Ideas’ is a new product offering from our Retail Research Desk. Our stock recommendations through this segment aims at identifying trading stocks with sound fundamentals and attractive valuations. It is an advisory portfolio, which we intend to build over the next couple of months to a portfolio comprising 5 stocks rather than an generic list of the top ten best shares to buy. Once a recommendation has been initiated on a stock, subsequent rating on it like 'Accumulate', 'Hold' or 'Book part profits' will be updated on a weekly basis or as per company-specific developments.Stock Recommendations  - Top Shares to Buy Today in Indian Market ITC LIMITEDInvestment rationale      ~21x (TTM), a discount of around 24% from the mean. The risk-reward ratio appears to be favourable from here. Valuation Valuation has become attractive, after the recent price correction of around 21% from peak levels. Usually the stock trades at a PER of 27.63x (TTM basis) which is now at ~21x (TTM), a discount of around 24% from the mean. The risk-reward ratio appears to be favourable from here. A high dividend pay-out ratio is translating into a dividend yield of around 2.37%, which makes it appealing in the present market scenario. Valuing the company at a PER of 23x FY21E, which is a 15% discount to its normal forward PE multiples per share, we arrive at the target price of Rs 310, implying a 28% upside form current levels About the company ITC is one of India's foremost private sector companies; it has a diversified presence in FMCG, hotels, packaging, paperboards & specialty papers, and agri business. In addition, ITC's businesses and value chains create sustainable livelihoods for more than 6 million people, a majority of whom represent the poorest in rural India. HINDALCO LIMITEDInvestment rationale Valuation: Valuation looks pretty attractive for Hindalco. Its trading at below its mean PER. Strong cash flows, balanced leverage, decent operating margins and return ratios make it an attractive investment idea. Valuing the company at a PER of 9xFY21e, per share target price comes at Rs.250, implying an upside of around 17.20% from current trading price. Financial SummaryHINDALCO BUSINESSES Aluminium: Hindalco is one of the largest integrated primary producers of aluminium in Asia. With a pan-India presence that encompasses the entire gamut of operations, from bauxite mining, alumina refining, aluminium smelting to downstream rolling, extrusions and recycling, Hindalco enjoys a leadership position in aluminium and downstream value-added products in India Copper: Hindalco’s copper division, Birla Copper, operates one of the largest single location custom copper smelters in the world. Hindalco produces LME grade copper cathodes, continuous cast copper rods in various sizes, and precious metals like gold and silver. Hindalco is one of the major manufacturers of 19.6mm diameter copper rods, which is used for railway electrification Chemicals: The chemicals business serves a wide range of customers across 32 countries around the world with special alumina and alumina hydrates. Alumina hydrates find use in applications like alum, poly aluminium chloride (PAC), zeolites, aluminium fluoride, and as fire-retardant filler in polymer composites. Its special alumina is used in  applications like refractory, ceramics, polishing compounds, abrasives and glass. Dry cargo handling: Hindalco’s Dahej Harbour and Infrastructure Limited (DHIL) operates an all-weather jetty in the  Gulf of Khambhat on the west coast of India. DHIL is strategically located to cater to the logistics and transportation needs of its customers; its present handling capacity is 4.5 million MT of solid bulk cargo. Fertilisers: Hindalco produces di-ammonium phosphate (DAP) fertiliser. It is the most popular phosphatic fertiliser because of its high nutrient content and good physical properties, Hindalco also produces nitrogen phosphorus potassium (NPK) complexes as value-added downstream products. The products are marketed under the well-known brand Birla Balwan. Acids: During Hindalco’s copper production process, by-products such as sulphuric acid and copper slag are formed. Sulphuric acid is partly converted into phosphoric acid, which is then made to react with ammonia to make di- ammonium phosphate (DAP) fertiliser. SEGMENTAL HIGHLIGHTSThe company has identified aluminium and copper as its reportable segment. Description of each of the reporting segments is as under. Aluminium segment: This part of the business manufactures and sells hydrate and alumina, and aluminium and aluminium products. Copper segment: This part of business manufactures and sells copper cathode, continuous cast copper rods, sulphuric acid, DAP & complexes, gold, silver and other precious metals About the company An industry leader in aluminium and copper, Hindalco Industries Limited, the metals Flagship Company of the Aditya Birla Group is the world's largest aluminium rolling company and one of the biggest producers of primary aluminium in Asia. Its copper smelter is one of the world’s largest custom smelters at a single location. DR. REDDY’S LABORATORIESInvestment rationale Valuation DRL’s US business has bottomed out with improving launch momentum to drive higher revenue gradually. Further, its focus on ex-US business seems to be showing results with strong growth in Europe, EMs & PSAI. DRL has also shifted its specialty strategy to focus on its core R&D capabilities rather than commercialization in the US, which will help improve margins from H2FY20. Therefore, we see the growth recovery in the US, operating leverage from EM/India growth and cost saving from PP front-end exit to improve the earnings trajectory over the medium-term. At CMP, the stock is trading at an attractive P/E multiple of 18x and 17.3x on EPS of Rs163 and Rs168.5 for FY20E and FY21E, respectively. We recommend buy with a target price of 3,370 ESCORTSInvestment rationale ValuationEscorts is available at a PER of around 12.70x on TTM basis. It usually trades at a higher multiple of 22x on TTM basis. We believe the company will not gain market share from its competitors but is also well placed to capture economic revival. It appears poised for re- rating. Valuing the company at a PER of 18x FY21E, per share target is Rs.810, implying an upside of around 35% from current levels. We recommend an ‘ACCUMULATE’ rating on Escorts. About the company Escorts Limited is one of India’s leading engineering companies for farming and construction equipment in the country. For seven decades, Escorts has had presence three segments:  Agri-machinery Escorts Agri Machinery has in the last seven decades, committed itself to enhancing India’s agricultural productivity and adds value to the farmer’s life. Escorts currently provide technologically superior range of 22 HP to 80 HP tractors with under two star brands: Farmtrac and Powertrac. With a growing network of over 800 customer touch- points.  Construction equipment Escorts provide equipment for material handling, road building, earth moving and other services, addressing the large national opportunity with a comprehensive basket of products.  Material handling equipment and railway equipment. Escorts’ Railway Equipment Division (RED) possesses a rich, multi-decade experience in the Manufacturing of critical railway components. The division (operationalised in 1962) is one of the oldest such units in the country, partnering Bajaj ElectricalsInvestment rational Valuation The company looks poised to deliver revenue CAGR of 20% over next couple of years. The company is available at a PER of 11.88xFY21E. Valuing the company at a PER of 20xFY21E, per share target price comes at Rs.657. We recommend an ACCUMULATE rating on Bajaj Electricals. Consumer Product Segment The consumer product segment includes domestic and kitchen appliances, fans and consumer lighting products.  “Consumer Products Segment continued to reap the benefits of Range & Reach Expansion Programme (RREP), registering a good growth with improvement in margins. RREP has now been fully rolled out pan India, which helps the Company to reach out to end consumers through more than 2,05,000 retail outlets across the country. EPC Segment The portfolio under the EPC segment of Bajaj covers everything under the spectrum of power transmission, distribution and illumination.  The areas of operation include EHV transmission line projects, EHV substations, monopoles for transmission and distribution, rural electrification projects, RAPDRP, feeder separation, lift irrigation projects, underground power cabling, HV substations, high mast and street lighting, sports lighting, power plant lighting, specialized illumination projects and electrification projects on total turnkey basis. Disclaimer: This document has been prepared by IndiaNivesh Securities Limited (“INSL”), for use by the recipient as information only and is not for circulation or public distribution. INSL includes subsidiaries, group and associate companies, promoters, employees and affiliates. INSL researches, aggregates and faithfully reproduces information available in public domain and other sources, considered to be reliable and makes them available for the recipient, though its accuracy or completeness has not been verified by INSL independently and cannot be guaranteed. The third party research material included in this document does not represent the views of INSL and/or its officers, employees and the recipient must exercise independent judgement with regard to such content. This document has been published in accordance with the provisions of Regulation 18 of the Securities and Exchange Board of India (Research Analysts) Regulations, 2014. This document is not to be altered, transmitted, reproduced, copied, redistributed, uploaded or published or made available to others, in any form, in whole or in part, for any purpose without prior written permission from INSL. This document is solely for information purpose and should not to be construed as an offer to sell or the solicitation of an offer to buy any security. Recipients of this document should be aware that past performance is not necessarily a guide for future performance and price and value of investments can go up or down. The suitability or otherwise of any investments will depend upon the recipients particular circumstances. INSL does not take responsibility thereof. The research analysts of INSL have adhered to the code of conduct under Regulation 24 (2) of the Securities and Exchange Board of India (Research Analysts) Regulations, 2014. This document is based on technical and derivative analysis center on studying charts of a stock’s price movement, outstanding positions and trading volume, as opposed to focusing on a company’s fundamentals and, as such, may not match with a report on a company’s fundamentals. Nothing in this document constitutes investment, legal, accounting and/or tax advice or a representation that any investment or strategy is suitable or appropriate to recipients’ specific circumstances. INSL does not accept any responsibility or whatever nature for the information, assurances, statements and opinion given, made available or expressed herein or for any omission or for any liability arising from the use of this document. Opinions expressed are our current opinions as of the date appearing on this document only. The opinions are subject to change without any notice. INSL directors/employees and its clients may have holdings in the stocks mentioned in the document.This report is based / focused on fundamentals of the Company and forward-looking statements as such, may not match with a report on a company’s technical analysis reportEach of the analysts named below hereby certifies that, with respect to each subject company and its securities for which the analyst is responsible in this report, (1) all of the views expressed in this report accurately reflect his or her personal views about the subject companies and securities, and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report: Dharmesh KantFollowing table contains the disclosure of interest in order to adhere to utmost transparency in the matter: INSL, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. 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Key factors Analysis Indian equity markets: De-escalation of tensions between the US and Iran and positive global cues like signing of the recent initial trade agreement between the US and China have helped the frontline indices to scale fresh all-time highs. In the broader markets, mid and small-cap indices have outperformed the benchmark indices for the last couple of weeks. Macro-economics: India’s economic growth has slowed down significantly in the last couple of quarters mainly due to liquidity tightness (lack of credit availability) to small corporates and SMEs. Trade uncertainty between the US and China and slower growth across major economies has also led to slower domestic growth. Expect gradual recovery in economic growth in coming quarters, helped by a favourable base, some revival in private consumption spending led by the easing liquidity situation and recent government announcements to support growth. Sectoral view: 2020 could be the year of a cyclical recovery for the economy and sectors like financials, metals, materials and automobiles will outperform, while FMCG and utilities could see muted participation. Stock-specific outperformance is expected in mid and small-cap segments. Stock pickers will be rewarded. Equity market valuations: We expect the Nifty 50 EPS to see traction of over 20% in FY21. Discounting the Nifty 50 at FY21E at a PER of 21x, Nifty’s year-end target is likely to be around 12,600. Outlook going forward: We continue to remain positive on equities; however, valuation comfort has moderated after the recent up move seen in markets. Valuation-wise, certain large-cap stocks look overvalued so a staggered shift from large to mid and small caps is recommended. Possible broad-based earnings cycle recovery led by corporate tax cuts should benefit mid and small caps.Monetary policy actions: After reducing the policy rates by 135 bps over the past one year, the RBI paused in December 2019; however, the policy guidance provides for maintaining the accommodative stance as long as necessary for reviving growth. The RBI may remain on pause mode for the remainder of FY20 as near-term inflation data is likely to remain elevated on higher food prices and the MPC wants to wait for the budget to see fiscal risks and its implications for growth. We may see status quo on rates till the end of FY20. Yield curve: The RBI’s decision to conduct Operation Twist (simultaneous purchase and sale of government bonds) has led to benchmark G-sec yields coming down from ~6.85% to 6.60%. However, implementation of Operation Twist has elongated the rate-cut cycle by 6 months. Growth-inflation dynamics provide visibility for a prolonged period of lower policy rates for the coming months. However, fiscal concerns and higher inflation may keep the longer end of the yield curve volatile. Liquidity & bond rates: There has been a contraction in corporate spreads of late especially for AAA & AA-rated corporates but not so much for lower-rated ones. From a risk-return perspective, the short-to-medium end of the yield curve offers better riskadjusted returns as the RBI has maintained an accommodative stance and the system has seen surplus liquidity for last couple of months, and is expected to remain in surplus mode going forward. Outlook going forward: We recommend a combination of short-duration and medium-to-long duration funds with a portfolio maturity range of 2–5 years. Going forward, decent quality AA-rated papers shall see higher spread compression and offer an attractive investment opportunity for investors willing to go down a bit on the yield curve. Disclaimer: This document has been prepared by IndiaNivesh Shares & Securities Private Limited (“INSSPL”), for use by the recipient as information only and is not for circulation or public distribution. INSSPL includes subsidiaries, group and associatecompanies, promoters, employees and affiliates. INSSPL researches, aggregates and faithfully reproduces information available in public domain and other sources, considered to be reliable and makes them available for the recipient, though its accuracy orcompleteness has not been verified by INSSPL independently and cannot be guaranteed. The third party research material included in this document does not represent the views of INSSPL and/or its officers, employees and the recipient must exerciseindependent judgement with regard to such content. This document has been published in accordance with the provisions of Regulation 18 of the Securities and Exchange Board of India (Research Analysts) Regulations, 2014. This document is not to bealtered, transmitted, reproduced, copied, redistributed, uploaded or published or made available to others, in any form, in whole or in part, for any purpose without prior written permission from INSSPL. This document is solely for information purpose andshould not to be construed as an offer to sell or the solicitation of an offer to buy any security. Recipients of this document should be aware that past performance is not necessarily a guide for future performance and price and value of investments cango up or down. The suitability or otherwise of any investments will depend upon the recipients particular circumstances. INSSPL does not take responsibility thereof. The research analysts of INSSPL have adhered to the code of conduct under Regulation 24(2) of the Securities and Exchange Board of India (Research Analysts) Regulations, 2014. This document is based on technical and derivative analysis center on studying charts of a stock’s price movement, outstanding positions and trading volume, as opposed to focusing on a company’s fundamentals and, as such, may not match with a report on a company’s fundamentals. Nothing in this document constitutes legal, accounting and/or tax advice or a representation that any investment or strategy is suitable or appropriate to recipients’ specific circumstances. INSSPL does not accept any responsibility or whatever nature for the information, assurances, statements and opinion given, made available or expressed herein or for any omission or for any liability arising from the use of this document. Opinions expressed are our current opinions as of the date appearing on this document only. The opinions are subject to change without any notice.)